Could UNDERpopulation Threaten Global Financial Systems?

Data from US Department of Census International Database ^ | 10.19.06 | Dangus

[dangus]

The demographic situation of the world is not simply overpopulation. In many regions of the world, it is severe underpopulation. Globally, there is a mix of both. Yet the focus has been nearly exclusively on overpopulation, to the point where underpopulated groups foolishly try to reduce their own population. This could have devestating effects.

In the early 1960s, the earth's population was expanding at a rate of 2.2% per year. At that rate, it would double every 32 years. By the year 2050, the Earth's population would be over 20 billion. As recently as a decade ago, many demographers guessed the world's population would be about 12 billion by 2050. Today, the midrange guess is about 9 billion, only about 40 percent larger than it is today.

This is not the result of the UN Popularion Conference in Beijing in the early 1990s. In fact, that conference was only called after population stabilization appeared likely; the population of babies had already begun to decline.

The trick to studying population growth is that a reduction in the number of babies only causes a reduction in the number of women of childbearing years (henceforth, "fertile women," if you will excuse me using such words in such dry economic contexts) some 15 to 40 years later. The total population will continue to expand until the number of babies born drops below the death rate, which is typically similar to what the birth rate had been seventy years earlier.

Even when lowering birth rates cause a severe drop in the overall number of births, the drop typically reverses itself about 20 years later, due to growing number of fertile women from the previous generation. In the US, where this effect was very mild, this was known as the "baby boom echo," or "Generation Y." (see image) For population stablization to occur long-term, at this point, the number of births should stabilize. If it decreases again, the birth rate may have to rise sharply to account for inevitable steep declines in the number of fertile women.

Globally, the population of babies peaked in the late 1980s. Currently, the population of babies has rebounded to be roughly the same as it was 15 to 20 years ago. The United Nations, and to a slightly lesser extent, the United States Department of Census (USC), expects the population of succeeding generations to grow moderately. (US Census' data) This is based, however, on the presumption that most nations with very low fertility rates will see their rates rebound, at least to 1.7 babies per woman.

If such researchers are wrong about rebounding birth rates, massive depopulation may occur. And there is no reason to suspect the USC may be right. For instance, the USC expects the Japanese fertility rate to increase 25%. Even in China, they expect an immediate and substantial reversal in fertility. But what if these reversals do not happen?

Unless the Chinese birthrate increases, there could be 300 million fewer people in 2050 than predicted. According to my own research, between 2030 and 2090, the Chinese population could fall by about half.

Female population of various age cohorts in China, in thousands, using my estimation techniques described below

Year	0-4	5 to 9	10 to 14	15 to 19	20 to 24	25 to 29	30 to 35	36 to 40	41 to 45	All women	Total Pop
2000	44127	48918	59998	49749	46472	57617	60607	50000	39465	609512	nc
2005	38382	43844	48817	59779	49381	46066	57205	60182	49571	626639	nc
2010	38024	38136	43753	48639	59337	48950	45737	56804	59666	640776	1336827
2015	36028	37781	38057	43594	48279	58818	48600	45416	56316	649865	1355789
2020	34333	35797	37703	37918	43271	47857	58398	48259	45026	654675	1365824
2025	32824	34113	35723	37565	37638	42893	47515	57988	47845	654563	1365590
2030	30265	32614	34043	35593	37287	37309	42587	47182	57491	645678	1347053
2035	27548	30071	32546	33919	35330	36961	37042	42288	46777	626924	1307928
2040	25736	27371	30009	32427	33668	35021	36697	36782	41925	605452	1263132
2045	24388	25571	27314	29899	32188	33374	34771	36440	36467	576558	1202851
2050	23092	24232	25518	27215	29678	31906	33135	34527	36127	542441	1131673
2055	21646	22943	24182	25425	27013	29419	31678	32903	34230	510371	1064768
2060	20239	21507	22896	24094	25237	26777	29209	31456	32620	482920	1007498
2065	18873	20109	21462	22813	23916	25016	26586	29004	31186	452911	944892
2070	17601	18752	20067	21384	22644	23707	24837	26399	28755	419130	874415
2075	16496	17488	18713	19994	21226	22446	23537	24663	26173	391850	817501
2080	15511	16390	17452	18645	19846	21040	22285	23372	24452	367584	766876
2085	14562	15412	16357	17389	18507	19673	20890	22129	23171	346039	721928
2090	13632	14469	15380	16297	17260	18346	19532	20743	21939	324630	677263

[Data up to present day is from US Department of Census International database. For subsequent data, I presumed that the same proportion of people at each age would die as died during the 2000-2005 period. For instance, if in 2005, the 20-24-year-old cohort was .993 times the size as the 15-19-year-old cohort was in 2000, I presumed that in 2025, the 20-24-year-old cohort would be .993 times the size as the 15-19-year-old cohort was in 2020.

[For the number of births, I measured the current ratio of births to women in their reproductive years, and multiplied it by the number of women in their reproductive years in each subsequent timeframe. Women in their reproductive years are counted as every woman between 20 and 40, and half of the women between 15 and 20, and half of the women between 40 and 45. Whether or not that actually represents the distribution of births within those years, it should at least provide a reasonable basis for comparison.

[Lastly, I extrapolated from female population to total population based on a constant ratio of women to all people. Again, this may be imprecise, but should produce reasonable results. ]

The following table shows the fertility rates of the world's most populous nations (with some extras to fairly represent all global regions). (Keep in mind, however, that China, for instance, has about 20 times the population of Iran, Egypt or Germany.) A score of 2.0 indicates that there are two babies born per woman, which would be enough to maintain the population if every baby born survived throughout childbearing years.

	1990	2006		2015	2.0 reached
Bangladesh	3.8	3.1		2.95	?
Brazil	2.56	1.9		1.75	2003
Burma	3.08	1.98		1.78	2005
China	2.19	1.73		1.85	1991
Egypt	6	3.4		2.8	?
Germany	1.45	1.39		1.45	Early
India	3.8	2.9		2.49	2050
Indonesia	3.03	2.44		2.15	2021
Iran	5.3	1.73		1.7	1999
Japan	1.52	1.4		1.46	Early
Kenya	5.6	4.91		3.3	2040
Korea, South	1.59	1.27		1.36	Early
Malaysia	4.3	3.1		2.9	?
Mexico	3.9	2.7		2.5	?
Nigeria	6.43	5.49		5.16	?
Pakistan	6.47	4.14		2.94	2050
Philippines	4.12	3.1		2.66	?
Poland	2.06	1.26		1.34	Early
Russia	1.87	1.38		1.48	Early
Saudi Arabia	6.62	4		3.45	?
South Africa	3.6	2.2		1.88	2010
Thailand	4.2	1.5		1.7	1996
Turkey	3.1	1.92		1.76	2003
UK	1.83	1.66		1.67	Early
USA	2.08	2.09		2.13	?
Viet Nam	3.65	1.91		1.78	2003

Now here's the kicker!

The Global financial system is based on the presumption of ever-increasing scarcity. No matter how bad the economy gets, investment of any surplus is sensible, since any loss in the value of the investment is certain to be regained at a later date. With a growing population, even if the economic efficiency declines, demand must increase, making investing safe. Investment, then, creates greater economic efficiency. What would happen if our financial system could not depend on the certainty of increasing scarcity?

I'm not stating this as an alarmist: I purposely distinguish between finance (a system of investing) and economics (a system of fulfilling needs). If the global population shrinks, one could, on the surface, expect that there will be more product per person, not less, providing that the economy does not shrink as fast. But, if we needed to, could we build a financial system that would not result in an economic collapse if investmentment could not rely on increasing scarcity?

[cripplecreek]

Money, that's really what it's all about.

[BeHoldAPaleHorse]

A thought: in this scenario, while demand would decreasing, the labor available to meet that demand would also be decreasing.

[2banana]

Interesting.

The USA is the only one with an increasing fertility rate.

And I had no idea the county with one of the highest fertility rates is Saudi Arabia...!

[Incorrigible]

Thanks for starting this thread Dangus

Related thread:

Ignore the Downsiders -- Population Growth Is Necessary and Good [Lileks]

 

[dangus]

>> demand would decreasing, the labor available to meet that demand would also be decreasing. <<

Yes, that's what I meant by the last section: It doesn't necessarily mean economic disaster... but how do we transition from our current financial system to one which works with decreasing demand?

[BeHoldAPaleHorse]

The point I was making is that there would still be scarcity--but it would be a labor scarcity vs. a capital resource scarcity.

[Reeses]

Technology changes everything. There won't be a significant labor shortage or taxpayer shortage because robots will be doing most of the work and generating most of the wealth. But only if we invest in them now and not in expensive illegal laborers. Some investment is going on in battlefield robots but comparatively little outside of that.

[Irishguy]

if i may suggest some reading on just how perilous the situation is may i recommend mark steyns new book America Alone. it deals with the population issue in some depth, some of it is scary

[underbyte]

More wealth in fewer hands - wealth continues to grow but population declines raises the standard of living.

If people are richer they will spend more money so the scarcity issue is a moot point

[dangus]

The population of elderly will not decline until long after the population of the workforce declines. Will the elderly control the capital? Not necessarily. Under our financial system, the value of an investment is based on future profits, presumed from future increasing scarcity. All those 401K plans, social security trust funds, stock markets, real estate markets... they could all approach zero value.

Here's my advice everyone:

The only sound investments are children who love you.

[wideawake]

Interesting analysis. Of course, demand is not really static - the ability of each person on the planet to consume grows significantly each year.

There are billion people today who would be expected to live on bare subsistence who will, two decades from now, be demanding cable TV and motorized transport and multiple sets of clothes, more elaborate housing, etc.

Economic growth is predicated on two things: the appetite for goods and the capacity to creatively satisfy those appetites.

We know the appetite for goods will never slacken, so we need only incetivize ingenuity.

Economic mismanagement in the face of population growth has resulted in poverty and so will economic mismanagement in the face of population decline.

Smart, flexible thinking is the key.

[wideawake]

Perfectly put.

[wideawake]

Money is a store of value. It is not itself inherently valuable.

[GOP_1900AD]

I agree. Over the long haul, the world has gone thousands of years in growth mode. We essentially have no real experience with what will really happen economically when overall global population growth is negative. I think there are major downsides.

[wideawake]

We essentially have no real experience with what will really happen economically when overall global population growth is negative.

Ah, but we do.

Europe, which was a very closed economy at the time, lost one third of its population in a single generation in the mid-1300s due to the bubonic plague.

There is a large documentary record describing the economic aftereffects of that depopulation disaster.

[dangus]

Not thousands of years, merely about 600. Many lands in the Middle Ages achieved stable populations, and mechanisms to maintain stability. A priestly caste, the prohibition of charging interest, the investment of excess human capital into religious works and holidays, and sacramentalized sexuality helped stabilize both economic and population growth, despite a life expectancy near 50 years (and much older, if one survived childhood).

We all know (and even grossly exaggerate) the down sides, but few know that there were actually up sides.

[Scotswife]

"More wealth in fewer hands "


Less hands to create wealth.
Decreasing wealth as producers age and become unproductive.
Fewer producers to maintain everyone's standard of living.